by Charles Hugh Smith
Of Two Minds
Stocks don’t vanish when sold; somebody owns the shares all the way to the bottom. These owners who refuse to sell because they have convinced themselves the next dip will be the hoped-for resumption of the bullish trend are called “bagholders.”
Trends are tricky. Humans anticipate the present conditions will continue on into the future. In economics and finance, we call this continuation a “trend.” Trends continue until something fundamental changes and the trend takes a new course.
If asset prices, credit, sales, jobs, tax revenues and profits are all expanding, we call this trend “bullish.”
If the economy and asset prices are contracting, we call this “bearish.”
People are much happier in bullish trends because they’re making money without any effort as the assets they own are going up in value. They feel wealthier and so they borrow and spend more money, which furthers the expansion.